Fianna Fáil Spokesperson on Finance Michael McGrath has said the availability of buy-to-let mortgages with an interest only option of up to 15 years is a cause of serious concern and has called on the Central Bank to examine the appropriateness of such lending products.
Deputy McGrath was commenting on new buy-to-let mortgages being advertised by ICS Mortgages (Dilosk DAC) which involve the option of the borrower – including private landlords – to pay interest only for up to 15 years.
Deputy McGrath commented, “With an interest only mortgage, the capital repayments only kick in after a fixed period of time, in this case up to 15 years. At that point, the borrower will be faced with a major increase in repayments which they may or may not be able to meet. The interest rate being offered on such products is as high as 5.45%. The combination of a very high interest rate and no capital repayments for a long period of time presents real risks for both the investor and the tenant.
“We have learned in the past the problems posed by mortgages that involve a prolonged period on interest only. Interest only mortgages of this nature are based on the assumption that there will be significant capital appreciation in the underlying asset – in other words, property price growth. I do not believe it is the type of mortgage lending we want to see in Ireland.
“The obvious question is what happens when the interest only period expires? Will the borrower be able to pay off the capital on the mortgage over a short period of time? If not, does enforcement action against the borrower become inevitable?
“Investment properties are also people’s homes and we need to ensure that the debt underpinning these properties is on a sustainable basis from the origination of the loan to the final payment.
“The re-emergence of long term interest only mortgage loans in Ireland is a source of serious concern. The Central Bank needs examine the appropriateness of this product in the Irish market and make its views known,” concluded McGrath.